What Good Is Accumulating Money If You Don't Have Access To It or You Don't Know How Much You Will Have When You Need It
One Common Misconception About Annuities Is That It Ties Up Your Money....
Having access to your money is only half the story. It is not only that money is available, but HOW MUCH OF YOUR MONEY IS AVAILABLE and how long does it take to get it.
ANNUITIES ARE VERY LIQUID!!
There are a number of ways that one can access the money accumulated in an annuity. Remember, though, that Annuities are LONG-TERM ACCUMULATION AND DISTRIBUTION PRODUCTS. The way that the insurance companies can provide the guarantees (i.e. insure your money) is to make long-term commitments. Therefore, if you want something for the short term, and have the ability to get in and get out at will (like the stock market) the annuity may not be your best choice. However, if you truly want to be sure that your money is available WHEN YOU NEED IT it may be one of your best choices. If you are in a risky investment, Murphy's law will dictate that you will probably need your money when your account is at a low point. With Annuities, there is no low point because there are only ups, and no downs.
HOW CAN YOU ACCESS YOUR MONEY?
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Most Annuities allow you to withdraw up to 10% of your money per year penalty free. Think about life situations - How many situations can you think of where you need more than 10% of your money immediately. (Some Annuities allow you to accumulate the 10%s. that are not withdrawn)
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If you need more than 10%, you can withdraw up to 100% of your money at any time by paying a decreasing surrender charge for the amount withdrawn in excess of the penalty free amount allowed.
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If you want a pension, you can elect to have a lifetime income rider whereby you will receive an income for the rest of your life, even after you withdraw the entire balance in your account. i.e. YOU CAN STILL WITHDRAW YOUR PAYCHECK (pension) EVEN IF YOUR ACCOUNT HAS A ZERO BALANCE.
With an annuity, timing your withdrawals is not a consideration. Once you are credited interest, you can never lose it. You will have it as long as your account is active. (The power of annual reset). Once you receive interest, you will never have to give it back.
An Example:
Mr. Jones invests $100,000 in an annuity with a 10% premium bonus and a 10 year decreasing surrender period with 1st year surrender charge=10%. The annuity also allows a 10% free withdrawal each year.
Suppose, an emergency comes up in 6 months and Mr. Jones needs to withdraw $50,000 immediately:
Including the bonus, the Mr. Jones' account immediately becomes $110,000.
Upon withdrawal of $50,000:
10% of $110,000 = $11,000 is penalty free.
$39,000 is subject to a 10% penalty or a penalty of $3900.
Balance left in the account is $100,000 - $50,000 - $3,900 = $46,100
Note that the only thing Mr. Jones gave up was a portion of his bonus not his investment. Now THAT IS LIQUIDITY.
LET'S LOOK AT ALTERNATIVES
| Type of Investment |
Liquidity Characteristics |
Bank CD |
Very Liquid - You can get all of your money at any time with an interest penalty. |
Annuity |
Can withdraw 10% of your money per year penalty free. More than that is available with a decreasing surrender penalty. Once you reach the end of the surrender period, the entire account balance is completely available penalty free. Depending upon the annuity, surrender periods can vary from a couple of years to 15 years.
(Note: if in Florida, surrender charge can never be greater than 10% and the surrender period can never be longer than 10 years) |
Mutual Funds |
Mutual fund values are very volatile. The monies are available when wanted. Fees are charged to facilitate the transaction. The question is how much will be available? Can you predict how much the account will be worth at any time? Just as the account value is unpredictable, so is the liquidity in the sense that you will not know how much will be available at any given time. |
Stock Market |
Stock values are very volatile. The monies are available when wanted. Fees are charged to facilitate the transaction. The question is how much will be available? Can you predict how much the account will be worth at any time? Just as the account value is unpredictable, so is the liquidity in the sense that you will not know how much will be available at any given time. |
Bonds |
Bond values are very volatile. The monies are available when wanted. Fees are charged to facilitate the transaction. The question is how much will be available? Can you predict how much the account will be worth at any time? Just as the account value is unpredictable, so is the liquidity in the sense that you will not know how much will be available at any given time unless you wait until maturity. |
Real Estate |
Real Estate values typically increase 4%-5% per year. We now are in unprecedented times and the value of our properties is unstable. In addition, how long would it take to sell a piece of property? If Money is needed right away, you may not get the full value in a fire sale. When selling, there are numerous charges. e.g. broker commissions. |
Precious Metals |
Precious Metal values are unpredictable and varies much like the stock market. The monies are available when wanted. Fees are charged to facilitate the transaction. The question is how much will be available? Can you predict how much the account will be worth at any time? Just as the account value is unpredictable, so is the liquidity in the sense that you will not know how much will be available at any given time. |
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